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13 January 2015
HY Corporate Credit
Energy
efficiency, and (v) decreasing non-productive capital spending (test wells,
seismic, infrastructure, etc).
As we consider 2016, our equity counterparts have looked at the issue of US
growth and asked the question: 'What would we need to see from the
industry to normalize production growth from 2016 forward at a level more
consistent with demand expectations? (i.e. reduce US YoY supply growth to
500-600 Mb/d)." They estimate "that at minimum, the industry would need to
drop -160+ horizontal rigs from the "Big Three" plays (Bakken, Permian, Eagle
Ford) - or -25% of the near 700 rigs currently operating in these plays. The
implications for the overall oil rig count (-1,600) is much more severe, as
vertical rigs and marginal plays would likely fall off first, implying a total rig cut
of 500+." If this scenario plays out as expected, it suggests that US YoY
supply growth would be reduced from 0.90-1.0 million boepd now to about
500-600K boepd, or a reduction of 300-400K boepd. We believe markets
would view this move as significant.
Looking at Figure 8. the good news is that we have seen some solid progress
towards decreasing horizontal rigs by that -160 figure.
Since the OPEC
meeting in late November, horizontal rig count in the Big Three plays has
decreased by 40 rigs or about 25% of the DB required cut - and the biggest
step down came in this past week. In that same span, total US rig count has
decreased by 167 rigs or about 33% of the DB required cut - again, with the
best step down coming this past week. Not surprisingly, the necessary decline
in less efficient rigs (both vertical rigs and rigs in marginal plays) is happening
faster than for the core three plays, where rigs are most efficient.
Figure S. LIS Drilling Rig Score Card Since November OPEC Meeting
local Rios Minn. All BittP11%
!Junctional lionzontnl VIA-veal
r.na:
Rigs working as el OPEC Mating
194
1,871
962
1,917
12/5/2014 WoW change
0
131
2
3
12/12/2014 WoW change
(21
(1)
(241
4271
12/19/2014 WoW change
01
(11)
16/
(18)
12/26/2014 WoW change
1141
(61
(151
135)
1/2/2015 WoW change
16)
114)
(9)
129)
1/9/2015 WoW change
(141
(35)
(121
(611
Rigs waking as Week 1/9
161
1.301
288
1.750
Total Rig Decline since OPEC Meeting 111/271
(331
(70)
(Sal
(167)
Total Rig Decline since Relative Oil Peak 16/20)
(671
51
(921
11013)
Hortdmil Rig Deans In es Mg 3 Plays
Eagle Fad
Pomion Bakken
Teal
Rigs waking so ol OPEC Meeting
207
903
IN
759
12/5/2014 WoW change
(3)
4
131
121
12/12/2014 WoW change
(21
17)
ill
(10)
12/19/2014 WoW Mange
2
4
(71
III
12/26/2014 WoW change
121
3
121
11)
1/2/2015 WoW change
(5)
0
0
(51
1/9/2015 WoW change
131
(10)
(8)
(211
Rigs malting as Week I/O
194
957
169
719
Big 3 Rig Decline since OPEC Meeting 111/271
(131
161
(211
(40)
Big 3 Rig Decline since Relative Oil Peak (6/201
10
(341
7
4171
Scutt 6/v Maas
Page 8
Deutsche Bank Securities Inc.
CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e)
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